Download now: Cannabis Cash

What the Saudis Aren't Telling Us

Energy and Capital's Weekend Edition

Written by Keith Kohl
Posted June 2, 2012

Suffice to say the triple-digit oil prices we've seen over the past few years have been good to the Kingdom of Saud.

By the end of next year, Saudi assets are projected to top $1 trillion.

When two-thirds of your income is tucked away in your oil industry, it allows you to increase spending on other things, namely education, health care, jobs and infrastructure...

At least we'll have a front row seat to their fall.

Saudis' Fading Fortune

Ever wonder what it takes to give a Saudi prince nightmares?

Here's a hint...

wti-brent prices 6-2click to enlarge image

What could possibly hurt the Saudis' purse more than this?

Together, WTI and Brent crude prices have fallen about 20% during the last thirty days, despite the fact that summer is upon us.

But it shouldn't be the crude price slide that has them worried...


The real concern here is on the demand side of things.

What will happen when everyone suddenly realizes things aren't going so well for OPEC members?

And when global demand rebounds, how soon will it be until the spare capacity dries up?

opec spare capacity

Although Saudi Arabia's oil production is chugging along at more than 10 million bbls/d, OPEC spare capacity is at its lowest point since 2008.

And there's another problem hidden in the details. Saudi spare capacity — which stands at a little more than two million barrels per day — isn't the light, sweet crude the refiners prefer...

Remember when 1.5 million bbls/d of Libyan oil was taken off the market last summer?

We got a good taste of the poor quality of their spare capacity.

The heavy, sour oil coming from Saudi fields was a poor replacement for the light, sweet Libyan supply — especially considering European refiners weren't equipped to handle it...

Not to mention the fact that domestic demand in OPEC countries has been on the move:

opec domestic demand

In 2010, Saudi Arabia's oil demand increased to 2.4 million barrels per day. At this pace, they'll be consuming more than three million barrels per day in three years — and over four million barrels per day by 2020.

It's a good thing we won't be begging them for more oil going forward...

While the Saudis are adding extra-heavy, sour grade crude to their production, we've admittedly had it better.

By now, the resurgence taking place in the North American oil industry is more than just hype.

The 6.2 million barrels of crude projected to be pumped out of U.S. oil fields this year will the most since 1998 — making now the perfect time to go long on oil stocks.

Enjoy your weekend,

Keith Kohl
Editor, Energy and Capital

Natural Gas Vehicle Boom: Afford to Retire on Time
Analyst Ian Cooper uncovers a simple investing solution for baby boomers wanting to retire on time.

Silver, BAP and License Plates: Investment Ideas for a Deleveraging World
SLV is overdue for a bounce. It has been consolidating for the past 13 months and is down by almost 50%. The gold-silver ratio is running into strong resistance at 59:1... This indicates that all the fast money has sold silver and investor sentiment is bearish.

Here's the Next Bull Market: Two Unlikely Stocks Making Record Highs Today
The next investment bull market is easy to spot. And it's already started despite the housing depression, credit default swaps, and Spain and Greece. I think it'll last for the next 20 years...

Finding Long-Term Value in Natural Gas: The Holy Grail of U.S. Energy
Energy and Capital editor Keith Kohl explains why the upcoming transition to natural gas is one of the greatest investment opportunities in today's volatile market.

Graphite Investments: Which Graphite Companies Are Best?
It's been called a "miracle material" and "the newest next big thing" by scientists and market analysts alike. But more important than what it can do for energy and technology is what it's going to do for investors.

Balancing Fear and Greed: Don't Be Scared
If you're full of fear, you're not playing to win... you're playing not to lose.

Who Wins Greece?: Trading the Endgame
CNBC is now reporting Greece will leave the Eurozone on June 18th if the populist government wins the country's elections on the 17th. I am trading this situation on multiple fronts.

A Golden Ticket in the Golden Age of Gas: It's Time to Break the Rules
Why breaking the IEA's golden rule to natural gas could fuel profits for these investors...

Hydrogen Fuel Cells: The Downfall of Tesla?